Archives

Meta

Re-Thinking Economics Part 9

Building a Bridge: Big Government vs Small Government

Suppose that both Almayer and Brooks are building a bridge that costs $1 million each. Almayer is governed by a big government while Brooks employs a small government to complement its adherence to Shariah-based economy system.

The big government of Almayer do what governments normally do — collecting the fund through tax. But it is impossible to collect $1M in tax without incurring any expenditures. Tax collectors, accountants and record keepers need to be employed.

Just collecting the money already incurr considerable expenses. Yet there’s more expenses coming in spending it. Tender committee need to be compensated, engineer to to set the spec, as well as various government officials to supervise and audit the project.

Even if the tender process goes well, the cheapest bid will not be $1M. The contractor will necessarily inflate the cost to account for late disbursement of fund from the government. Even without that cost, the higher number of stakeholders to be dealt with necessitates higher man hour costs and the inevitable delay costs.

This assumes the contractor play nice and follow the due process. If he bribes the committee then the cost must be passed somewhere. It can be either through reduction of quality or cost inflation. Even worse, he’ll do both!

Meanwhile in Brooks, the government announce that a bridge need to be built. Brooks hardly collects any taxes so the merchants and investors have lots of money. One merchant steps up to pledge the bridge as a waqf. He paid a professional contractor to build the bridge. He just shell out the cost at market price without the added bureaucratic cost?

Utopia?

Hold on, this is an utopian dream! Is it possible to have such an egalitarian society?

If the government is too small, how is it able to provide security to its people? How could it enforce any laws if it can’t pay a single police or prosecutor?

But then, this has happened before. Medieval Islam embraced the law but government is deemed as a necessary evil. In fact, they were slow to have a standing army — the usual required accessory of the state.

Government is kept at arm’s length from the merchants and common people. Many things are decentralized — infrastructures are built by the people for the people. Be it schools, universities, libraries, hospitals, roads or water works. With the nature of Islam that lacks any formal priesthood order, there’s also no big religious institution that have monopoly on people’s life either.

The same people who hopes for an Islamist president or PM also usually hope for price control on essential items. But they’ll be surprised to learn that the Prophet refused to clamp down food price when there’s a food shortage in Medina. He even went as far as declaring that it is irreligious to do so.

It is perplexing when encountering this fact as many collective vision of Islamist social justive includes low prices of essential items — be it wheat, rice, petrol, sugar, etc. Usually this is achieved through subsidies — both during production and distribution. It can also be in the form of guaranteed purchase of produce by the government.

But this have several implications. Most glaringly, this strategy necessitates a big government. Only such institution are able to collect large amount of tax required to fund the subsidies.

Subsidies then introduce distortions to the market. In the case of food, our food is rich in carbohydrate, fat and sugar because it is artificially cheap. It also caused many perfectly edible crops being dumped after being overproduced to stabilize the price.

Again, having big government is too much of a risk — even in the face of a very real risk of hunger. Prudent management of the environment, reduced consumption and strategic stockpiling is deemed as a better alternative. It is even better to hope for the rich to endow their plantations as waqf or give away food as sadaqah.

—

Some might be wondering that the ideal government seems toothless. Is it really the case? We’ll look into this matter in the next article.